In order to avoid this kind of confusion, the writer would be expected to put a comma after 明美は. Grammatically speaking, of course, the person who was embarrassed can be Akemi, though, a comma after 明美は困惑しながら would be highly recommended in that case.

Makes sense?

As for your second question, 何が would be “what” in the sense. By reduplicating those two interrogatives, you can express/emphasize “what ON EARTH” feelings in this kind of sentence.